Question
Given the information, Australia real income=10 trillion, money supply=20trillion, price level=4.00,nominal interest rate= 5% UK real income=20 trillion, Money supply = 20 trillion pounds, price
Given the information,
Australia real income=10 trillion, money supply=20trillion, price level=4.00,nominal interest rate= 5%
UK real income=20 trillion, Money supply = 20 trillion pounds, price level=2.00, Nominal interest rate per annum=5%
both countries has maintained long run levels, and nominal exchange rate is 2.00, UIP holds all the time and PPP only hold in long run.
Now today time T, real income of Australia rose to 10.1trillion (1%) permanently, with the increase of real income in Australia, interest rate rose to 6.00% per annum today, assume that Y and MS does not change at all. Using equations from the money market, calculate the exchange rate today, right after the increase of the the real income in Australia.
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